A Rite of Passage: When You Apply for a Credit Card (cont.)
Contributed by Alix Mcmurray
After You Apply for That Credit Card: Don't Get in over Your Head
Once you have established a credit history with your "beginner's" card, you can consider a major purchase through a more traditional card. But beware of that revolving door of credit! Revolving credit is the option to retain an unpaid balance from month to month, while paying a minimum amount comprised of part of the balance plus calculated interest. While this may be convenient on the short-term, you do run the risk of building a balance so high that all you do from month to month is pay the finance charges, leaving that balance to swell like a balloon.
You Can Apply for a Credit Card That Allows You a Learning Curve
Besides revolving credit, there are two other types of cards -- charge cards and installment credit. For the one, you are expected to pay off the balance in full each month (i.e. billing period). For the other, the balance of a single purchase is divided into a series of repayment amounts. While charge cards keep you honest by necessity, you can still get in over your head with them. Finance charges on charge cards are out-of-this-world, generally more than 25 percent!
The more prudent route would be to make that landmark, large purchase with an installment plan card. That way, you can and should stick to a budget throughout your repayment period and develop your credit history slow and steady.
